Making Things in America

Some years ago, one of my neighbors, an émigré Russian engineer, offered an observation about his adopted country. “America seems very rich,” he said, “but I never see anyone actually making anything.”

That was a bit unfair, but not completely — and as time went by it became increasingly accurate. By the middle years of the last decade, I used to joke that Americans made a living by selling each other houses, which they paid for with money borrowed from China. Manufacturing, once America’s greatest strength, seemed to be in terminal decline.

But that may be changing. Manufacturing is one of the bright spots of a generally disappointing recovery, and there are signs — preliminary, but hopeful, nonetheless — that a sustained comeback may be under way.

And there’s something else you should know: If right-wing critics of efforts to rescue the economy had gotten their way, this comeback wouldn’t be happening.

The story so far: In the 1990s, U.S. manufacturing employment was more or less steady. After 2000, however, it entered a steep decline. The 2001 recession hit industry hard, while the bubble-fueled expansion of the decade’s middle years — an expansion marked by a huge rise in the trade deficit — left manufacturing behind. By December 2007, there were 3.5 million fewer U.S. manufacturing workers than there had been in 2000; millions more jobs disappeared in the slump that followed.

Only a handful of these lost jobs have come back, so far. But, as I said, there are indications of a turnaround.

Crucially, the manufacturing trade deficit seems to be coming down. At this point, it’s only about half as large as a share of G.D.P. as it was at the peak of the housing bubble, and further improvements are in the pipeline. The Boston Consulting Group, which is now predicting a U.S. “manufacturing renaissance,” points to major U.S. firms like Caterpillar that once shifted production abroad but are now moving it back. At the same time, companies from other countries, especially European firms, are moving production to America.

And one potential disaster has been avoided: the U.S. auto industry, which many people were writing off just two years ago, has weathered the storm. In particular, General Motors has now had five consecutive profitable quarters.

But there is a fly in the ointment (how I dislike vapid cliches - sorry).

Companies like Caterpillar are threatening states with moving out. It's blackmail. And many move out AFTER they get tax incentives and concessions.

Studies show that states seldom get a return on these 'investments'. But politics, whose definition reads, 'what it looks like' precludes telling companies 'move if you want. It probably won't be any better where your going, over all'.

It's funny how Krugman speculates that this comeback wouldn't be happening if "right wingers" had it their way. What factual evidence does he provide for this hypothetical case? Or is it that he is "Krugman" the prize winning economist?